Specialist & Emerging Businesses

Specialist & Emerging Businesses (SEB) comprises five specialist product units:

• Securities Services - holds and safeguards the assets of large pension and superannuation funds and fund managers. It provides settlement functions, back office processing and performance monitoring of investments, and has more than $345 billion of assets under custody and administration.
  
  
• Cards & Payments - manages the Group's credit card business with over 4 million credit cards on issue. It is responsible for the processing and completion of electronic payment transactions and the development of electronic payment processes and systems.
  
  
• International Trade & Business Finance - provides services to customers on the sale, processing and finance of import/export transactions and settlement of trade debts through the Group's subsidiary banks and network of correspondent banking partners in more than 170 countries. Business Finance is primarily an invoice discounting business.
  
  
• Asset Finance & Fleet Management - the Group's product specialist in plant, equipment and motor vehicle leasing and Custom Fleet, the fleet management business.
  
  
• National Australia Investment Capital Limited - the Group's Australian venture capital arm.

Financial Performance

Statement of Financial Performance	Half Year to		Year to		Favourable / (Unfavourable) Change on Sep 00
	Sep 01 $m	Mar 01 $m	Sep 01 $m	Sep 00 $m	%	excluding fx impact %
Net interest income	371	312	683	551	24.0	19.6
Other operating income	462	436	898	936	(4.1)	(5.7)
Total operating income	833	748	1,581	1,487	6.3	3.7
Other operating expenses	470	474	944	919	(2.7)	(0.5)
Underlying profit	363	274	637	568	12.1	8.8
Provision for doubtful debts	168	72	240	99	large	(135.9)
Profit before tax	195	202	397	469	(15.4)	(17.9)
Income tax expense	63	68	131	160	18.1	20.4
Net profit	132	134	266	309	(13.9)	(16.7)

Net Profit by Business Unit	Half Year to		Year to		Favourable / (Unfavourable) Change on Sep 00
	Sep 01 $m	Mar 01 $m	Sep 01 $m	Sep 00 $m	%	excluding fx impact %
Cards & Payments	81	93	174	226	(23.0)	(22.1)
Securities Services	24	27	51	42	21.4	21.4
Leasing & Asset Finance	24	11	35	41	(14.6)	(16.6)
International Trade & Business Finance	5	6	11	4	large	large
Other	(2)	(3)	(5)	(4)	(25.0)	-
Net profit	132	134	266	309	(13.9)	(16.7)

Securities Services

Securities Services had a successful year with solid performances by all core businesses. Continued growth in new business gave rise to a 21.4% increase in net profit to $51 million. At 30 September 2001 Securities Services had assets under custody and administration of $345 billion, an increase of 21.0% from September 2000.

Securities Services grew its share of the domestic master custody market to 36% and captured 40% of the core custody market. In Great Britain it has a sizeable share of the custody/trustee market.

Its capabilities in Great Britain were enhanced by the launch of custody and related value-added services which will position the business to participate successfully in the growing Great Britain and Ireland pensions market.

Effective from October 2001, Securities Services reporting lines will change from Specialist & Emerging Businesses to Wholesale Financial Services. This realignment will assist the National to provide a wider coordinated range of financial solutions for financial and other institutions where appropriate, whilst ensuring that Securities Services continues to maintain the independence and integrity of its client relationships.

Cards & Payments

During the year Cards & Payments were brought under a single management structure. The Payments business was impacted by the loss of a major customer in Australia and a large merchant card provision for Ansett in the second half. The combined unit produced a net profit of $174 million, down 23.0% on the prior year.

The Cards business performed strongly during the second half of the year with profit increasing 16.9% on the first half. Card outstandings grew 20.7% over the year. Profit growth has been impacted by the costs associated with providing loyalty programs and higher charges to provide for doubtful debts. The provision charge has increased as a result of volume growth and a more conservative provisioning policy.

A number of recent initiatives are beginning to improve the profitability of this unit including:

• The implementation of one global Cards operating platform was completed in August. This has enabled Cards to converge major processes and places it in an ideal position to take advantage of new product and customer value propositions;
  
  
• Re-pricing of segments of Card's portfolio in Great Britain and Ireland through the adoption of risk based pricing principles.

• The commissioning of new real time fraud prevention software in Payments.

Asset Finance & Fleet Management

The Asset Finance & Fleet Management businesses contributed net profit of $35 million, down 14.6%, mainly due to a $20 million write back in the maintenance provision in the September 2000 year following a change in accounting treatment. Excluding this write back, profit increased 25% from the prior year.

Core operations performed solidly including;

• Asset Finance total income up 10% reflecting strong sales performance and increased market share in Australia and Great Britain;

• Fleet Management Australian new sales increased 20% on the prior year; and
  
  
• Fleet Management completed its global system platform with Europe in May 2001.

International Trade & Business Finance

International Trade & Business Finance contributed net profit of $11 million up 192%.

During the second half International Trade & Business Finance increased its net profit contribution to $5 million, $4 million up on the previous corresponding period. International Trade achieved productivity gains through the automation and streamlining of processes which led to a reduction in costs and the enhancement of service standards. The business continues to focus on the electronic processing evolution in global trade.

In Australia, Business Finance grew strongly, securing 50% of the market as demand for this service continued to grow. In Great Britain and Ireland the business has also focused on streamlining process and is shifting attention to invoice discounting in line with market trends. Business Finance increased revenue by 17% to $25 million over the prior year.